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An influential asset manager's plea for a breakup of Swiss bank
UBS
is unlikely to gain traction at a time when the current strategy is paying off for shareholders—and will continue to do so in the next few years.

Overcoming costly rate-fixing and unauthorized trading scandals, management has transformed the Basel-based bank (ticker: UBSN.Switzerland) in the past couple of years. It has bolstered the capital ratio, reduced risk-weighted assets and deleveraged the balance sheet. First-quarter earnings were stellar, an indication the bank is on the right track. Why would investors want to rock the boat now? Shareholders should keep faith with the leadership; they could be handsomely rewarded.

The stock has jumped about 47% in the past 12 months, far outstripping a 7.7% gain in the Stoxx Europe 600 banking subsector. Many analysts make a good case the stock will add from 10% to 20% in value in the next 12 months.

In an open letter published on the day of UBS' annual meeting last week, Knight Vinke Asset Management, an activist investor in Monaco, recommended UBS separate its investment-banking business from its wealth-management and Swiss banking operations "to unlock the full potential value." It suggested the unit's management and employees would be the best owners, since it has paid out CHF115 in salaries and bonuses since 1998 while contributing a loss of CHF25 billion to its parent and shareholders.

Questions linger over Knight Vinke's timing and the influence it can wield with a stake of less than 1%, although its opinion is respected. From a similar position, it successfully agitated for HSBC to sell its U.S. subprime-lending business.

"I wonder how much support they will garner in this regard," says Berenberg Bank analyst James Chappell, pointing out that UBS' strategy is delivering.

The logic of Knight Vinke's argument makes sense, says Liberum Capital analyst Cormac Leech, adding, however, that the investment-banking business gives prestige to UBS and would present a funding challenge as a standalone entity. He sees good reason to keep the status quo. Earnings at UBS' wealth-management business are at a cyclically depressed level and offer substantial upside. He's also excited about the prospect of UBS releasing capital and, as long as stock markets don't collapse, expects an 8% to 12% dividend yield within two years, up from 0.9% now. "It is a low-risk, high-upside trade," Leech says.

If UBS delivers, shareholders will have little to complain about.

THE EUROPEAN CENTRAL BANK last week signaled it could introduce negative rates on deposits at the central bank, so institutions would pay to park their cash. It cut its main refinancing rate by 50 basis points (a half percentage point) to 0.5% in a bid to ease pressure on banks like those in South Europe that have borrowed heavily from the ECB. More conventional quantitative easing could be required to shake Europe out of its economic stupor.